TA help required, did I make mistake or just unlucky?

[wbosher]

I put a small amount of money into SDL on the ASX looking for a breakout. I thought I saw a pennant formation and got in waiting for a breakout, hopefully on the upside. Unfortunately it went down , but what I want to know is if what I did was valid, and I just got unlucky, or did I misread this completely.

Any TA help appreciated. If I did misread this I don't want to make the same mistake again. :o

Cheers in advance.

[STRAT]

Hi Wbosher
What day did you buy?

[wbosher]

June 30th at 16 cents. I wanted to wait until it dropped back to 15c but I was worried that it would keep going up, and I would miss out. It went up to 17c that day but then fell again.

I've added a new attachment which shows what I would have seen when I bought in.

[STRAT]

I forgot to ask if you were planning a short play or longer.
I would approach each slightly differently in terms of how much historical info I take into account but bottom line I reckon is it aint a breakout till its a breakout. You bought before it broke which depending on other indicators is much like the flip of a coin.
You also bought on the 4th down day in a row. What made you think it would eventually break to the upside?

also at that time.
RSI flat
OBV flat
Down trend from 11th June increasing in speed
Overall market conditions looking a bit grim

[wbosher]

I read in several places that these patterns usually breakout on the side of the current trend, which until then was up (since April). I was planning on a fairly short/medium time frame, maybe a few weeks.

My thinking was that it may go as high as around 19 or 20c and that there was pretty good support at 15c.

[Phaedrus]

Let's start by looking at what you did right. You probably selected a suitable stock in that SDL was in a "medium-term" uptrend with a rising OBV.

Where you went wrong :-
(1) The pattern identification. Pennants have sloping lines. This formation had a flat base, so it was in fact a descending triangle. This distinction might seem a little pedantic, but these 2 patterns have very different statistics. Pennants after an uptrend usually break to the upside, but Descending triangles usually break to the downside, so the odds were stacked against you right from the start.

Our perspectives are going to diverge markedly, WB, because I am going to use a line chart vs your bar chart.

(2) The medium-term uptrend was running out of steam. See how momentum was falling? More importantly, note the divergences shown here as the Momentum and RSI made lower highs as the price hit higher highs. These are Bearish divergences.

(3) The immediate situation. SDL was in a short-term downtrend when you bought. It still is. No-one can say how far this will run, but the idea is not to buy into a downtrend, but rather wait for it to reverse before entering.

(4) Medium-term, SDL's uptrend had a nice tidy well confirmed trendline in place. This was broken on 25/6/09 giving a SELL signal. You bought (at the green arrow) just after this.

So, when you bought,
SDL was in a short-term downtrend.
It had broken below its confirmed medium-term trendline.
The RSI was falling.
Momentum was negative.
There had been Bearish divergences.
You bought into a formation that would most likely break down.

[wbosher]

Thanks for that P, it looks like I made more than a few mistakes. I have a couple of question though.

(1) The pattern identification. Pennants have sloping lines. This formation had a flat base, so it was in fact a descending triangle. This distinction might seem a little pedantic, but these 2 patterns have very different statistics. Pennants after an uptrend usually break to the upside, but Descending triangles usually break to the downside, so the odds were stacked against you right from the start.

I was under the impression that triangles differed from pennants in that triangles usually formed over a much longer time frame, months rather than days/weeks, where pennants were usually only days to a few weeks.

(2) The medium-term uptrend was running out of steam. See how momentum was falling? More importantly, note the divergences shown here as the Momentum and RSI made lower highs as the price hit higher highs. These are Bearish divergences.

I've never used the momentum indicator, I'll check it out. Trying to keep the amount of indicators I use down to a minimum at this stage, so I don't confuse the hell out of myself.

(4) Medium-term, SDL's uptrend had a nice tidy well confirmed trendline in place. This was broken on 25/6/09 giving a SELL signal. You bought (at the green arrow) just after this.

As you said, we used different chart styles, you used the line and I used the bar. Both gave different results! Looking at the bar chart, it looked to me like the medium term trend was still intact, where as the line chart clearly shows a break below the trend line. This has me a little confused as to what type of chart is more effective, and under what circumstances to use what type of chart..

Oh, so much to learn...

[STRAT]

Hi Phaedrus
Just out of interest. My chart shows a bounce off the trend line on the 25/06 leaving the trend in tact for another day or so. I realize this one thing is not enough to change the analisis but was wondering if our data is different or the plot is different
IC shows
High 16.0
Low 15.0
Close 15.0

[STRAT]

Thanks for that P,

As you said, we used different chart styles, you used the line and I used the bar. Both gave different results! Looking at the bar chart, it looked to me like the medium term trend was still intact, where as the line chart clearly shows a break below the trend line. This has me a little confused as to what type of chart is more effective.
.

Those results had less to do with the chart type and more to do with the fact that Phaedrus plotted his trend line on closing prices and you plotted yours on the lows of the day

[wbosher]

That's what has me confused. Almost everything I have read online and in books says to plot an upward trend using the lows of the day and a down trend using the highs. The charts using closing prices seemed to signal a break below the trend line far earlier than the the bar chart. I'm starting to wonder if I should start to use closing prices to plot trend lines rather than the OHLC.

Obviously other indicators screamed stay out but my toolbox at present is pretty limited as I explained earlier.

This trade was based more on what I thought was a good chart pattern than anything else, and I though the support at 15c may hold.

Back to the drawing board. :o